Gold weaker until the next disaster?

The U.S. Comex gold futures dropped 1.88% week-to-Thursday after falling 0.22% last week. The S&P 500 index climbed 0.23% this week after rising 0.31% in the previous week while the Euro 50 Index rebounded 0.19% this week. The Dollar Index climbed for a second week by 0.26% to 80.246 on Thursday.

How was Gold in 2012?

The World Gold Council (WGC) released its full year 2012 report on the gold demand trend. While overall volume was down 4% from 2011 at 4,405.5 tonnes, the total annual value reached an all-time high of $236.4 billion. In particular, consumer sentiment in India towards gold remained strong despite its government's effort to reduce gold demand while Chinese investment demand surged 24% in Q4 versus Q3. The WGC expects that the demand in China and India will rise over 11 percent in 2013. The central banks' net gold purchases have reached the highest level in almost 50 years, a jump of 17% or 534.6 tons in their reserves.

What Happened to Gold Recently?

Year-to-date, gold performed the worst among the precious metals, falling 2%. Expectations of faster economic growth in the G20 countries and the aversion of major financial disasters have reduced the safe-haven demand for gold, pushing people to load up on risky assets such as equities and increase their bets on other commodities. The U.S. unemployment claims last week fell 27,000 to 341,000, which was lower than Bloomberg's lowest forecast. China's GDP will comfortably exceed 8% this year. The dollar rose against the Euro as the Euro-area contracted 0.6% in Q4 last year and the ECB expects zero growth in 2013. The CFTC data ending Feb. 5 show that traders have cut their bets on higher gold prices by 56% since last October. The volume of gold-backed ETPs has declined 0.9% this year. Big gold investor George Soros cut his holdings in GLD ETFs by 56% in Q4 while Moore Capital liquidated all its GLD ETFs. The saving grace will be a pick-up in the Chinese physical demand after the Lunar New Year holiday.

Data to Watch

Important events to monitor will include the G20 meeting this Friday and Saturday, the ECB President Speech in Russia on Feb. 15, the January FOMC meeting minutes and the U.S. January housing starts on Feb. 20, the 'flash" PMI in the E17 and the U.S. on Feb. 21, and Germany's February IFO business climate index on Feb. 22.